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Disney and Katzenberg Reach Pact on Lawsuit

The Walt Disney Company and its former studio chief, Jeffrey Katzenberg, announced an unexpected settlement today that avoids a legal battle in court but leaves open the amount Mr. Katzenberg will receive to further negotiations.

In a brief statement, the two sides said that discussions would now take place on the amount to be paid to Mr. Katzenberg, who had run the Disney studio for more than a decade. Mr. Katzenberg, now a partner at Dreamworks SKG, had sued, seeking at least $250 million from Disney, contending that the company had failed to give him his rightful share of the profits of hit films, including ''Beauty and the Beast,'' ''Pretty Woman,'' ''Aladdin,'' and ''The Lion King.''

Specifically, Mr. Katzenberg accused Disney of reneging on an agreement to pay him a bonus of 2 percent of the profits earned by Disney films and television programs placed into production while he ran the studio.

Disney contended that Mr. Katzenberg, by leaving the company in 1994, instead of in 1996, when his contract expired, had forfeited his share of movie and television profits. Mr. Katzenberg left Disney after he was denied the company's No. 2 position following the death of Frank G. Wells, the president, in a helicopter crash.

A joint statement said that although Disney and Mr. Katzenberg had not agreed on the amount of their settlement, ''they will now engage in a further proceeding to determine the amount to be paid to Mr. Katzenberg.'' The two sides said they had also agreed to keep the terms of the settlement confidential. One Disney executive said that the company expected the matter to be resolved over the next few months.

The suit stirred enormous attention in the entertainment industry. It is highly unusual for a power broker like Mr. Katzenberg to engage another power broker like Michael D. Eisner, the chairman of Disney, in a potentially embarrassing jury trial. Such disputes are generally resolved with a handshake and the writing of a big check, out of the eyesight of the news media and company shareholders.

Moreover, a trial had the potential to open Disney's financial records, providing far greater details than in documents required by the Securities and Exchange Commission of the bookkeeping, salaries, contracts, deals and perquisites. Disney's annual revenue has soared sevenfold in a a decade, to more than $10 billion, with $1.1 billion in profit.

People involved in the case said that Mr. Katzenberg and his former boss, Mr. Eisner, who have raged at each over the last two years, privately spoke to each other several times in the last few weeks as their lawyers sought to resolve the dispute.

Mr. Eisner and Mr. Katzenberg met face-to-face in a hotel room in Los Angeles 10 days ago, these people said. At the same time, lawyers for both sides began working out a settlement, which involved a floor sum that would be paid to Mr. Katzenberg by Disney.

Also involved in reaching the settlement were two Los Angeles County Superior Court judges, Enrique Romero and Owen Lee Kwong. The final settlement will be determined by a mediating judge. One person close to Mr. Katzenberg said that the floor price reached $100 million, but a veteran Hollywood lawyer said that figure was probably too high.

Under the agreement, according to one of the people involved in the case, the final determination of how much Mr. Katzenberg receives from Disney comes with a stipulation. If the mediating judge determines that Mr. Katzenberg is owed far more than the floor figure, Disney may have to pay a lesser figure than the judge decrees.

Mr. Eisner had, until recently, refused any offers of compromise. After Mr. Katzenberg left Disney, Michael Ovitz, the former Disney president, privately worked out a deal with David Geffen, one of Mr. Katzenberg's partners at Dreamworks, to resolve the issue. But Mr. Eisner rejected the settlement.

More recently, in the aftermath of Mr. Ovitz's departure from Disney last December, Mr. Eisner had been even more reluctant to resolve the dispute. According to some Disney executives, Mr. Eisner was strongly criticized following Mr. Ovitz's cash-and-stock severance package, valued at more than $100 million, and he apparently did not want to have this criticism repeated.

Today, both sides welcomed the agreement, but provided few details about it. A Disney statement said: ''We always prefer to resolve business differences outside of the courtroom and are pleased to have done so with this dispute. We wish Jeffrey well in all of his future endeavors.''